Importance of Financial Analysis in Healthcare Transactions

Healthcare organizations need to stay on top of their finances. New technologies, treatments, and drugs always require money to implement.

However, this does not mean healthcare organizations can afford to spend freely. Using data from CMS cost reports provides unique advantages over alternative data sources such as hospital survey data.

Budgeting for Healthcare Organizations

Healthcare organizations need to spend wisely. They have various costs and healthcare transaction advisory services to offer patients and must operate within their financial budget limits.

Healthcare managers use their best judgment to balance the needs of all departments. They need to know that their decisions impact the long-term health of their facilities, both financially and operationally.

For example, if they invest in a permanent MRI scanner instead of mobile truck-based MRI scanners, they need to know the potential revenue they will receive over time. This will help them decide whether the investment is worth it or not.

For this reason, hospitals must implement a professional capital accounting and budgeting process in their facility. This will ensure that the facility’s financial teams and departments are more productive and have better patient outcomes.

Capital Equipment Budgeting

When a company plans to invest significantly in equipment, performing a financial analysis before purchasing is advisable. This will allow the organization to compare the value of the future cash flow to the initial cost/investment. If the future cash flows exceed the cost/investment, the decision should be made to proceed with the project.

The discount rate is a critical part of the calculation. It is based on the concept that money has time value and that $1.00 today is worth more than $1.00 in the future because of the interest it will earn over the asset’s lifetime.

Other costs that should be considered when budgeting for capital equipment include taxes, duty, protective in-transit insurance, freight, installation and additional ancillary charges. It is also important to review actual results compared with the approved proposal at predetermined implementation milestones and the end of each capital project. This will help the organization learn from each project and improve future ones.

Length of Stay Budgeting

The longer a patient is in your hospital, the more expensive it can be. This goes beyond the obvious costs of the bed and staffing, as a long stay can also increase your risk of hospital-acquired infections.

Many hospitals are experimenting with different models for managing their revenue to improve efficiency. Some are reintroducing global budgets, which cap spending for each care unit, while others are moving away from these models and into more activity-based payment systems.

Financial Analysis

The healthcare industry faces many challenges, including increased costs associated with medical advancements and growing patient populations. Additionally, healthcare organizations must address budget variances and reimbursement gaps.

One way to improve financial health is using a powerful financial analysis tool. A full dashboard with visual metrics and KPIs allows for an accurate snapshot of your fiscal fitness. It can also help reduce inefficiencies and keep your cash flow healthy.

A balance sheet financial statement provides a detailed overview of a company’s assets, liabilities, and owner’s equity at a given time. It is a useful report for both internal and external stakeholders.

An income statement is another popular report that shows a company’s revenue and expenses for a specified period. The information subtracts total expenses from revenue to establish a business’s profit or loss.


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